LePage won’t sign for bonds, three years after shutting down 20-year-old program

AUGUSTA, Maine — MaineGeneral Medical Center wanted to build a 192-bed hospital in Augusta. The large, state-of-the-art building would replace three smaller, older facilities in Augusta and Waterville. Hospital officials believed the new place would be more efficient and safer for patients.

But they needed $280 million to make it happen.

For the past two decades, they could have joined a pool of other Maine nonprofits looking for cash. They could have issued a tax-exempt bond together, got help from a quasi-state agency and received an interest rate lower than any could have gotten separately.

Instead, the hospital had to go out on its own. It ended up with a poor bond rating and a 7 percent interest rate, rather than one closer to 5 or 6 percent.

MaineGeneral will spend an extra $42 million — $1.4 million a year for 30 years — over the life of the loan.

“It certainly did hit operations, and we had to dig a lot deeper to make it happen,” Mike Koziol, senior vice president and chief financial officer for MaineGeneral, said.

The hospital couldn’t join a nonprofit pool because in 2011, shortly before it went looking for financing, Gov. Paul LePage effectively shut down the 20-year-old program. During his first months in office, he refused to sign a pool bond package, preventing hospitals, colleges, community charities and other nonprofits from issuing bonds together through the quasi-state agency Maine Health and Higher Education Facilities Authority.

Three years later, he still hasn’t signed and the program is still shut down.

The governor’s spokesman did not return calls or respond to an email seeking comment Friday. In 2011, LePage said he refused to sign because the program amounted to using the state’s name without voters’ approval. He said Maine’s credit rating would suffer if one of the nonprofits fails to pay back its loan money.

Proponents of the program say no nonprofit has ever defaulted on a pool bond, and there are safeguards in place if one ever does. They say the risk is minimal, if there is any risk at all.

They believe Mainers are not hurt by the program but by its shutdown.

“It was a very, very successful program,” said Robert Lenna, former head of the Maine Bond Bank and the Maine Health and Higher Education Facilities Authority. “It’s saved dozens of borrowers in Maine millions, literally millions, of dollars.

“On the health care side, for example … if they borrow $100 million and pay 1 or 2 percent less on interest, that means that the cost for Medicaid goes down (because the hospital can afford to charge less),” Lenna said. “It is financially mind-boggling that we’ve walked away from the program.”

Lenna created the program for Maine about 25 years ago. At the time, nursing homes were struggling under variable rate debt and legislators wanted to help.

Lenna suggested a nonprofit pool that the authority would oversee.

“I said, ‘You could do this, and then everyone could join in and you could save money for everybody,'” Lenna said.

The Legislature agreed.

After that, the authority would hear a couple of times a year from a nonprofit that needed a sizable loan for a capital improvement project. The authority would let other nonprofits know it was creating a pool and invite them to join.

Without the pool, small nonprofits would need to rely on banks or other lenders for their financing. Their fees were generally higher, interest rates were higher and often adjustable, and loan terms were not so favorable. And that’s if a little nonprofit could get financing at all.

Larger nonprofits might be able to bond on their own, but interest rates could still be high, fees cost more without a pool to split the costs and the process wasn’t easy.

Over the years, the authority oversaw tax-exempt, low-interest loans for at least 80 nonprofits.

“Historically, that had been the vehicle for all of our projects,” said Carolyn Kasabian, chief financial officer for St. Mary’s Regional Medical Center in Lewiston. “They were happening fairly often. People knew, ‘Hey, I’ve got a project. I’ll contact the authority.”

In early 2011, the Maine Health and Higher Education Facilities Authority sent its latest pool bond paperwork to the governor for his signature. Internal Revenue Service rules require all tax-exempt revenue bonds to be approved by the highest elected official in the jurisdiction. It was routine; and in the previous two decades, Republican, Democratic and independent governors all signed without much comment.

But LePage said no.

His refusal stunned Maine’s nonprofit community. Eight hospitals, colleges and other nonprofits were in that pool and had expected to get $31 million in financing for projects already planned.

Lenna’s initial response? “I don’t think it’s printable,” he said.

When the authority asked what happened, Lenna said, “The message came back that the governor doesn’t believe in debt, doesn’t like debt and feels the moral obligation is some kind of dark voodoo that should never be used.”

If a nonprofit defaults on an authority pool loan, Maine has no legal obligation to pay. But it does have a “moral obligation.” If abandoned and left unpaid, such a loan could potentially hurt Maine’s credit rating.

Program proponents say safeguards are in place, including at least two multimillion-dollar reserve accounts. One would need to be fully depleted before Maine risked encountering any moral obligation, Lenna said.

“The idea that somehow or other it has a negative impact on the state’s credit rating is demonstrably nonsense,” Lenna said. “It is truly unfortunate that hospitals and colleges and small mental health facilities and the nonprofits around the state are paying substantially more, if they can borrow at all.”

“If the hopitals’ debt is costing them less, that’s less they have in costs,” Goodwin said. “That’s less that Medicaid has to pay, less Medicare has to pay, less private insurers (have to pay). You know, the whole flow through the system.”

Several nonprofits, including St. Mary’s and Bates College in Lewiston, said Friday they would like to see the pool come back. Thomas College in Waterville and Goodwill Industries of Northern New England said they could have used it in the past three years.

“We did borrow from a bank for Hinman Hall construction (a 20-year loan that must be refinanced in 10 years),” Beth Gibbs, Thomas College’s vice president of financial affairs, wrote in an email. “We would have preferred to borrow from (the authority) because we can get tax-exempt financing over a 30-year period. This stabilizes our debt with lower interest rates over a longer period of time, allowing us to keep our costs as low as possible for student tuition, room and board.”

Lenna said the Maine Health and Higher Education Facilities Authority tried to talk to the governor’s administration about the pool program in 2011, but it was to no avail.

“We attempted to review with people around him, like the state treasurer (Bruce Poliquin) and members of his staff,” Lenna said. “What it was and how it worked, that there had never been an issue, that it saved tens of millions of dollars. Essentially, their response was, ‘That’s nice, but no.'”

Poliquin, who hopes to be the Republican party’s candidate for the 2nd Congressional District, said Friday he didn’t want to talk about the program.

Current State Treasurer Neria Douglass said Friday she believes the program should be reinstated, because it saves nonprofits — and Mainers — money and because low interest rates make now a good time to borrow.

“It has a multiplier effect in terms of the jobs that are created, the facilities and infrastructure that’s there,” she said. “And, in addition, it’s just going to cost more later. If you’re not doing some of these capital projects and you’re putting off maintenance, you’ve just got a bigger hole to fill later. Bigger because of rates, bigger because of wear and tear that’s occurred over that time.”

Kasabian said St. Mary’s officials have met once or twice with the governor’s office to talk about restarting the pool bond program. They came away with the impression that “it wasn’t looking very promising.”

Goodwin said the authority hasn’t tried sending another pool bond to the governor for his signature. It costs the nonprofits time and money to get to that point in the bond process, he said, and the governor has made no indication that he’s changed his mind since 2011.

“Sending it over just to get denied again doesn’t make a lot of sense,” Goodwin said.